Fed signal11.23•  The tide is turning in stock markets' favour. The Fed is leaning towards cutting interest rates next year.

• Fed chairman Jerome Powell has just said: “The question of when it will be appropriate to begin dialing back the policy restraint” was clearly “a discussion for us at out meeting today.”  

OK, thank you, say markets everywhere. DBS Vickers has been quick this morning to put out a note, pointing out certain beneficiaries of rate cuts. Read on ....

Excerpts from DBS report

Technology and REITs: All eyes on rate cut beneficiaries


• The Fed pivots to rate cuts as higher-for-longer expectations ease

   » Officials’ forecast indicates no further hikes and 75 bps in cuts next year vs 50bps previously

   » Futures markets are pricing in 6 cuts; DBS expects 4 cuts in 2H24

   » Treasury yields across maturities tumbled with the 2-year treasury at 4.38% (declining by more than 30bps) and 5-year and 10-year treasury below 4%

• Rotation to S-REITS, Developers, and Technology could be rewarding

   » Our REITS analyst sees a Santa rally (Singapore Property & REITs : A Santa’s rally?). Our preferred REITs picks are KREIT, MPACT, MLT, FCT

   » Expectations of rate cuts are also positive for the rate sensitive technology sector.

      Normalising inventory levels, bottoming of the memory segment, and artificial intelligence should drive the recovery in the semiconductor/tech sector. Our preferred picks are UMS and Venture.


DBS Equity Picks

UMS Holdings: Add 14,000 shares @ $1.27 to Growth

andy luongAndy Luong, CEO of UMS. NextInsight file photo.We return UMS to equity picks considering the anticipated EPS recovery of 33% for FY24F, intact semiconductor recovery story, and the stock being our technology pick to ride on the upcycle.

The more conducive interest rate environment going forward also underpins the technology sector.

UMS’ share price has been unchanged since our call to remove the stock from equity picks in early September. Consensus fair value for the stock has been revised up to $1.51 since September, which is in line with our analyst’s TP of $1.55.

With the stock consolidating sideways for the past 3 months, we think the odds are rising for an upside move above the recent high of $1.34.

MapleTree Pan Asia Commercial Trust: Increase exposure by 3,000 shares @ $1.42

Our first foray into MPACT in early November at $1.34 has performed well on easing rate hike fears. We increase exposure as the stock remains our office REIT sector pick.

Beyond Mapletree Business City that’s one of Singapore’s quality business parks, the REIT is also anchored by VivoCity retail mall contributing c.54% of MPACT’s income.

VivoCity will benefit from Singapore’s resilient domestic demand and continued inbound tourism recovery with the recently announced 30-day visa waiver for Chinese tourists. With today’s increase, there is now 16,800 shares at an amalgamated price of $1.354.

 

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